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Charted: The startup boom in small-town India

Bengaluru and New Delhi may be the big boys of India’s startup club, but a bunch of smaller cities are increasingly making their presence felt.

Driven largely by incubators and tech parks, startup ecosystems are mushrooming in tier 2 and tier 3 towns, and the likes of Jaipur, Ahmedabad, Indore, and Kochi are emerging as new hubs. A fifth of India’s startups are now to be found in such cities, a Nov. 02 report by IT industry lobby Nasscom and consulting firm Zinnov shows. In 2016, these cities accounted for around 16% of Indian startups.

And despite operating in places away from the traditional hubs, startups working across healthcare, education, agriculture, energy, and others have received enough attention from investors. Around 20% of all venture capital (VC) investments made between July and September this year went to firms in tier 2 and tier 3 towns, shows data from LetsVenture, a platform that connects startups with investors.

The small-town advantage

The big lure of these smaller cities includes low manpower cost, cheaper real estate, and more affordable amenities. This allows young companies to do more with their limited budgets and stay bootstrapped longer.

“If you don’t have significant tech talent requirement, and if you’re a B2C (business to consumer) company, basing your company out of a smaller town might be better…expenses are low,” Harshil Mathur, co-founder of payments gateway startup RazorPay, told Quartz. Razorpay was incorporated in Jaipur in 2013, but shifted to Bengaluru two years later since most of its customers and prospective clients were there.

For other businesses, client access is not much of a constraint, thanks to the internet. “It’s not the right decision for a startup to do things in a metro unless you have to travel to meet people (in that city) daily,” said Rajeev Tamhankar, founder of comics publishing startup TBS Planet Comics, which recently moved its headquarters from Bengaluru to Jabalpur.

Smaller cities also have close-knit startup communities which help entrepreneurs find their first set of customers more easily, added Mathur. But the one struggle a startup operating from a small town could face is attracting niche talent, several entrepreneurs told Quartz. “Role models have already been established, which shows that scalability is possible from a tier 2 city,” Anurag Jain, co-founder and COO of Jaipur-based Girnarsoft, the parent company of CarDekho, told The Economic Times last year. “Talent acquisition still remains a major challenge in these markets,” he said.

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